Chase Picks Up The Tab By Sticking It To The Retailer
I love these promotions that banks run that are driven completely by debit cards. Chase has brought back their “Chase Picks up the Tab” promotion. When you use your debit card, you are entered into a sweepstakes. If they draw your number, then that transaction gets paid for by Chase. The maximum is $200 and the minimum is $5. So, this encourages the consumer to use their debit card as much as possible. Of course, this benefits the bank in a few ways.
First, the bank earns the higher transaction fee forced on the retailer to pay.
The rules stipulate that you use the debit card as a credit transaction without using your PIN. If you use your debit card as a debit card with your PIN, it is an online transaction that is debited from your account right away. The bank charges a small fee per transaction. It is minimal.
However, if you use as a credit transaction, it goes through the Visa and MasterCard system as a credit purchase and is an off-line transaction. The bank can then charge interchange fees of say 1.79% (current national average) on the entire purchase. Say you charged $200. As a debit transaction, it might cost the retailer 10 cents. As a credit transaction, the retailer would be forced to pay $4 to the bank (assuming a 2% transaction fee). Therein lies the big difference.
Second, the bank makes big bucks in overdraft fees. The Center for Responsible Lending estimates that banks could earn as much as 38 billion dollars this year in overdraft fees. That is a big business. A large majority of those fees were generated by mistakes from debit cards. Thus, banks offer promotions to consumers that promote heavy use of debit cards. Personally, I think debit cards are a mistake waiting to happen. It is so easy to use that card without really knowing if the accounting on your bank is accurate. You might forget to write things down.
Also, if it is true that banks sometimes “order” when transactions are paid, then they can figure out which transactions to pay first to rack up the most fees. By the way, this was proven to happen in a special report by USA Today.
So, don’t be impressed that Chase is willing to pay out more than $3 million in winnings. They can afford to do so given the crazy amounts of money that they will make.
